FAOB

Lawmakers have introduced a bill that would create the Federal Accounting Oversight Board, a new entity. The FAOB would not replace the Financial Accounting Standards Board; it would approve standards and decide how they are applied.

I’ve been reading about this all weekend. I don’t get the point of needing a new board, presumably within the SEC umbrella (I could be wrong about its position in the SEC). Isn’t the chief accountant already charged with having the final say on SFAS? I’m guessing that this is a legislative attempt to gain political influence over accounting standards, probably over fair value accounting, in particular.

I wonder, though, how it would relate to IFRS in general. I think increased government regulation (FAOB represents an attempt to increase regulation) is a threat to IFRS adoption.

The world experienced an era of free flow of capital across national boarders, a period that lasted nearly 40 years from 1890 to 1930. Recession/depression across the world ushered in an era of retreat. Tight regulation of financial markets became the word of the day as politicians sought to justify their office and protect citizens. This era lasted until 1961. Eventually world-wide recovery brought pressure to free capital flows again and loosen regulation. The rise of IFRS can, in part, be explained because it is a necessary and essential tool to this global financial market system. In recent decades, the SEC has evolved to become an agency providing only loose regulation.

Now, though, deepening financial difficulties are producing early calls for the U.S. to increase regulation of its own financial markets. At least, this is how I see it. Mary Schapiro, the new SEC chair, was appointed to implement a system of more effective regulation. This proposal for a FAOSB is consistent with a political push for new regulation. So is Schapiro’s intents to prolong use of GAAP, strengthen the PCAOB and more fully implement SOX.

I think it will be interesting to view developments over the next few weeks and months, to see which way the U.S. will go. And, whether anyone else in the world will follow. The Obama administration’s stated position, driven by globalizer Paul Volcker, is to embrace global financial markets and the free flow of capital. Increased financial regulation is antithetical to this position.

Who knows, perhaps nationalization of the U.S. banking industry is one way to accomplish the need for increased specific regulation while at the same time enabling conditions to support globalization for the rest of the portfolio of U.S. corporate interest.

Bob Jensen has called for me to drop my crusade against IFRS, at least on AECM. Don’t know if this is reasonable or not. However, as an academic, it also seems reasonable to craft theories about the influences that shape the financial accounting world we live in. I’ll be doing this over the coming days.